Canada’s retail sales creep up slightly in May

Canada's retail sales increase slightly in May

OTTAWA • Canadian consumers are still carrying the burden of economic growth, but just barely.

While household spending accounts for about 60% of the country’s wealth, its impact is beginning to wane. That moderation is already showing up in economic numbers, particularly retail spending.

The latest data, released Tuesday, showed sales were up slightly in May — reversing a loss in the previous month but missing forecasts by analysts.

Statistics Canada said spending rose 0.3% during the month — compared to expectations for 0.5% growth — following a 0.6% decline in April, which was revised from a 0.5% drop. In March, sales edged up 0.4%.

“As we look through the rest of this year, I don’t think the prospects of consumers really leading the way are very good at all,” said Douglas Porter, deputy chief economist at BMO Capital Markets.

“Income growth is modest at best, and confidence is a bit erratic. And, of course, households are burdened with record levels of debt and it seems whatever shopping people do, a lot of it is going south of the border these days. So, the outlook for retail sales is far from stellar.”

Tuesday’s report showed gains in sales at supermarkets and grocery stores, as well as clothing outlets and department stores. Those increases were offset by declines in automobiles and gasoline.

Overall, sales were higher in six of the 11 sectors tracked by Statistics Canada.

“It was a great month, but not a great quarter for consumers. It’s a rebound from what has been very sluggish consumer activity,” said Avery Shenfeld, chief economist at CIBC World Markets.

“The first half [of the year] has been lacklustre for Canada and we only look good by comparison to Europe,” he added. In other words, “the Canadian economy is doing well, all things considered, when one looks at the global context.”

Consumers did much of the heavy lifting that helped the Canadian economy out of the 2008-09 recession.

Their spending was encouraged by record-low borrowing costs, led by the Bank of Canada’s trend-setting interest rate. That rate remains at low level of 1%, where it has been since September 2010.

The growth in spending has, until now at least, been slightly outpacing or matching that of the overall Canadian economy.

But that is expected to change over the next three to five years, Mr. Porter said, with business investment and exports helping to fill the void.

Meanwhile, the May report on gross domestic product — to be released next Tuesday by Statistics Canada — will likely show growth of between 0.2% and 0.3%, CIBC’s Mr. Shenfeld said.

“May, as a whole, looks like a reasonable month for the economy. But overall, the second quarter will still be on track for 2% growth, so that’s nothing to really to cheer about.”

The contribution of Canadian households will likely be less than half of that, he added. “It wasn’t a great quarter for consumers. A lot of the growth in the second quarter is going to come from homebuilding.”

BMO’s Mr. Porter is forecasting May GDP growth of between 0.1% and 0.2%. “Our guess at this point is that we’re going to get fairly decent growth in the month,” he said.

As for the second quarter, he expects an increase of 1.8% — in line with the Bank of Canada’s forecast.